SUSPENSION OF THE REGISTRATION OF BROKERS
 
INVESTIGATION, ENFORCEMENT AND SURVEILLANCE

In the wake of sudden payment crisis in the month of June 1998, on BSE and NSE and allegations of manipulation in the scrips of BPL, Videocon and Sterlite, investigations were conducted by SEBI. Investigations prima facie revealed that some brokers acting in a concerted manner for common set of clients built up unusually large positions in these scrips resulting in distortion of the market equilibrium and creation of artificial market. Investigations also brought out that this common set of clients were acting as a front for Shri Harshad S. Mehta, a suspended broker of the BSE and an accused in the securities scam of 1992. 
 
Based on these investigations, enquiry proceedings were initiated against the brokers involved and actions were taken including issuing directions to some of the brokers under Section 11B of the SEBI Act directing them not to undertake any broking activity till the enquiry proceedings are completed and appropriate orders passed thereon. Out of those brokers against whom enquiry proceedings were initiated, enquiry proceedings have got completed in respect of following:

1. Mefcom Securities Ltd., member BSE and NSE

2. P.R. Shah Share & Stock Broker Pvt Ltd., member BSE

3. Lalkar Securities Pvt. Ltd., member BSE

It may be mentioned that the trading terminals of these brokers were switched off by the Stock Exchange, Mumbai earlier. The trading terminal of Mefcom was switched off on June 10, 1998 and that of P. R. Shah and Lalkar on June 15 1998.
 
After considering the recommendations of the enquiry officer, submissions made by these brokers, i.e. Mefcom, P. R. Shah and Lalkar, materials and evidences available on record, it was found that these brokers were involved in the manipulations in the scrips of BPL, Videocon and Sterlite. These brokers dealt for common set of clients i.e. Damayanti Group for the first time who did not have any professional expertise in the securities market and financial soundness to deal at such large scale. They did not charge any upfront margins also from these clients. These brokers acting in concert with other brokers cornered a very large quantity of shares of BPL, Videocon and Sterlite (70% of deliverable shares of BPL, 40/50% of Videocon and Sterlite) and created artificial market & manipulated the prices of these scrips and upset the equilibrium of the market. It was also found that Mefcom, P. R. Shah and Lalkar made purchases, which were excessive and beyond their or their clients means & financial resources and failed to honour their pay-in liability in time during the month of June 1998. P.R.Shah and Lalkar were found to have exchanged kaplis with other brokers on behalf of its clients Damayanti Group in violation of the prohibition of SEBI. 
 
These brokers were thus, guilty of violating the provisions of SEBI Act, 1992 read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 1995, SEBI (Stock brokers and sub-brokers) Regulations, 1992 and its Code of Conduct and Bye-laws of the Exchange where they are members. 
 
In view of the above, SEBI has ordered the suspension of the registration of these brokers. Suspension has been ordered for a period of 18 months for Mefcom Securities Ltd. & Lalkar Securities Pvt. Ltd. and for a period of 24 months for P.R. Shah Share & Stock Broker Pvt. Ltd. This period of suspension will be reckoned from the date when the trading terminals were switched off by the BSE, therefore, the suspension in respect of Mefcom Securities Ltd., P.R. Shah Share & Stock Broker Pvt. Ltd. and Lalkar Securities Pvt. Ltd. will be effective till December 9, 1999, June 14, 2000 and December 14, 1999 respectively.